The interim Head of Audit and Financial
Services introduced her report by explaining that the Annual
Governance Statement (AGS) for 2017-18.
The AGS 2015 is part of the requirements of the Accounts and Audit
Regulations 2015 that the Council is required to have as part of
the Annual Accounts. The AGS is reviewed by the external auditors
and produced on the Council’s external website for
information.

In the document the Council acknowledged its
responsibility for ensuring that there is a sound system of
governance; it summarised the key elements of the governance
framework and described the roles of those responsible for the
development and maintenance of the governance
environment. The AGS also described how
the Council had monitored and evaluated the effectiveness of its
governance arrangements throughout the year and on any planned
changes in the coming period and provided details of how the
Council had responded to any issue(s) identified in last
year’s governance statement and finally, reported on any
governance matters that need to be considered in
2018-19. The diagram on page 17 of the
AGS described how the Council prepared the governance statement and
the key elements of the Framework. The draft Statement is
considered by the Corporate Governance Working Group which included
key members of Council. The AGS was then presented to the Audit and
Standards Committee for approval, and then goes on to the Leader of
the Council and Chief Executive for approval. In preparing the Statement, reference is made to
the guidance produced by the CIPFA/ Solace Framework on Good
Governance. The Council’s Local
Code of Corporate Governance had been updated to reflect this
guidance and the Council had assessed the effectiveness of the
Council’s governance arrangements. In reviewing the effectiveness reference was made
to the governance framework, the actions that were raised last
year, details of which were given in the Appendix of the pack.
Where appropriate, actions had been carried forward into the
2017-18 Statement. Account had also
been taken of the Chief Internal Auditor’s report that was
presented to the Committee at the last meeting and the issues that
were identified in relation to the MyFinance and MyHR
systems including the issue regarding the capacity and capability
within the organisation. The AGS also
took account of the External Auditor’s view. In last year’s accounts there was an
Unqualified Opinion that was presented.
Issues relating to other agencies’ review inspectorates had
also been taken on board. Members were
asked to note the view that had been taken from the external
assessor presented to the Committee in March 2018 who gave it the
highest standard of compliance with the standards. The Council also reviewed whether the Section 151
and Monitoring Officer had had to use their official powers during
2017-18 (they had not had to use these powers). A review of scrutiny arrangements for Select
Committees had concluded that these were effective. A system for confirming that controls are working
is being developed via Corporate Directors in 2018-19. There had
been no complaints ...
view the full minutes text for item 23.

The Deputy Director of Finance (DDF)
introduced the Powerpoint training
session on the Statement of Accounts by giving details of the
context. The Statement of
Accounts were being brought to the
Committee for approval.

He explained that finalising the Statement of
Accounts had been a challenge this year as the Regulations had
changed which had meant that three months’ work had had to be
completed in two months, including the audit of the
accounts. This had proved to a
challenge and had had resource implications for the
Teams. Members were reminded that a new
Finance system had gone live in November 2017 and this had had a
direct impact on the Statement of Accounts. The first part of the Accounts had been run on the
old system (SAP), and the second part of the year on the
MyFinance system. Thirdly, the system for the valuation of fixed
assets had been changed from an in house valuation team to engage
the services of the District Valuer.

There have been some matters of human error,
not in respect of any cash transactions, but in the notional
transactions around fixed assets. No
system or control or data issues had been identified in regard to
the MyFinance System, but at certain
points in the year such as 31 March reports had to be run off to
enable the external auditors to do their job more efficiently. This
had not been known in advance, so some retrospective reporting had
had to be completed to enable the external auditors to do their
reports. There had also been some
learning in regard to the new arrangements with the District
Valuer.

The formal accounts were
placed before Members. There were many
notional adjustments i.e. non-cash back transactions that the
Council was required to put through the accounts in order to comply
with the Regulations, but because the impact of the non-cash back
transactions could fall to the taxpayer there were a number of
transactions that had to be put in the accounts and then reversed
out. This made reading the accounts and interpretation somewhat
difficult. From the Auditors’
report it was pointed out that there had been some final checks to
be completed and the DDF proposed that the Audit and Standards
Committee delegate to the Director of Finance and Resources (DFR)
to make any final adjustments to the accounts, subject to final
checks being undertaken by the external auditors, with the proviso
that if there was anything significant identified the DFR would
consult with the Chairman.

24a

Training Session - Understanding the Statement of Accounts

Minutes:

The Corporate Finance Manager (CFM) gave a
Training Session on Understanding the Statement of Accounts. She
drew Members’ attention to the concept of stewardship that
lay behind bringing the Accounts to the Committee. The Council spent a considerable amount of money
and it was important to show to the public, Councillors and the
external auditors that the Council had accounted for this money
appropriately. There were other aspects
of stewardship such as inspections and value for money inspections
and other systems of governance that showed how well the Council
was used. The Regulations governed the Statements of Accounts and
stated that they must be brought to the Audit and Standards
Committee for approval every year.

Inside the accounts the main areas of interest
were the statements that showed how much services cost; where the
Council had got money from and what assets and liabilities the
Council had at the end of the year. In
preparing the accounts the readership of the accounts was borne in
mind. The accounts covered the period
1.4.17-31.3.18. This had been the first
year with the new statutory deadlines and had meant that the
accounts had to be signed off by 31.5.18 by the DFR, and audited
and approved by the Committee by 31.7.18. There had been an extended period of public
inspection of six weeks this year during which there were no
enquiries.

The CFM went on to explain that the Code of
Practice on Local Authority Accounting must be followed in
preparing the accounts. There were no
significant changes in the Code this year. The accounts must be
signed by the DFR and audited by the external auditors, Ernst and
Young. Two of the fundamental
principles that were applied in the preparation of the accounts
were materiality and accruals.
Materiality meant that the Council should account for large
transactions and be less concerned regarding smaller
transactions. Accruals meant that the
Council must ensure that transactions are reflected in the correct
financial year.

The Narrative Statement was an overview of the
DFR setting out the financial position of the financial
year. The accounting policies were
quite technical and explained how the different financial elements
had been accounted for. Following this
the financial statements and notes and the Pension Fund accounts
were included. Of particular interest
was the comprehensive income and expenditure account. This showed
how much services had cost in the year and where the money to fund
those services had come from. The services were reported as
reported to Cabinet in the outturn and quarterly budget monitoring
reports. Some of the numbers may vary
e.g. deficit of £25m, when the outturn said the Council were
underspent. This was because of the
notional transactions that must be included in
Statement. In comparison with last year
the deficit was smaller. The Statement
also showed that the Council had paid more interest this year than
last year, as the Council had done some refinancing of
debt. The Council had a smaller loss on
disposal this year and ...
view the full minutes text for item 24a

Members asked for an explanation of the
increase in assets of £100m+ over the year. The DDF reminded Members that the total property,
plant and equipment was £1.7bn so
this was not a relatively massive increase. This arose as a result
of the valuations being refreshed each year by the District
Valuer, and also the Council had spent
£120-£150m per year on its Capital
Programme. A proportion of this will
impact on the valuation.

Members referred to the fact that support
services had overspent by £1.1m and this saving had now been
removed from the budget and asked for an explanation. The DFR stated that this was due to the Council
trying to renegotiate terms and conditions with the Trade Unions
regarding the redundancy scheme. The Government were trying to
renegotiate terms and conditions within the public sector and
Cabinet took the view that it would be difficult to negotiate with
the Trade Unions on a deal that would be detrimental to their
members and there was a prospect in the medium term of the
government making some changes. Members
asked if it could be an aspiration to make these savings. The DFR
stated that this was not in the current climate managerially
deliverable.

RESOLVED: a) That the Members approve the 2017/2018 Statement of
Accounts;

b) That the Committee approve the two
management representation letters attached to the covering
report;

c) That the Committee agree to give the DFR
delegated authority to make any outstanding adjustments necessary
to the Accounts in discussion with the Chairman of the Audit and
Standards Committee and the external auditors

Steve Clark, Ernst and Young, (EY) stated that
there had been a significant shift in the timetable for the current
year but they anticipated being able to sign the accounts within
the timetable i.e. by 31 July. Mr Clark
extended his thanks to the Finance and Resources team for their
help. In regard to the audit a number
of items had progressed since the report had been produced for the
Committee. In terms of the key areas of
audit focus, he anticipated issuing an unqualified audit opinion on
the financial statements in the form at Section 3 of the report and
value for money opinion before 31 July 2018. The DFR and Ernst and
Young had concerns regarding the longer term financial standing and
viability of the Council given the funding pressures that had led
other upper tier local authorities into significant financial
difficulty within a short space of time.

A number of audit adjustments had been
identified in year. The only
significant item that the Council had not proposed to adjust for at
the present time was in respect of the pension valuation, an
increase in the asset value of £8.175m. This had arisen for the first time as a result of
the actuary making an assessment in December of what they forecast
the year end position to be. The assets values had then increased
in the three months from December to March. The Council had chosen not to adjust for this and
Ernst and Young agreed with this decision. Mr Clark stated that
this was not a Staffordshire specific issue and that some
volatility was expected in the capital markets towards the end of
March next year as we move towards Brexit and this may affect
pension valuations at that time.

Vishal Savjani,
EY, highlighted the key areas. In the
Executive Summary the external auditors had identified the
following risks.

Fraud in revenue and expenditure
recognition. This was a standard
risk that appears on all audits.
E&Y were trying to focus their attention on the expenditure
recognition of the Council, specifically the valuation of accruals
and receivables in the accounts to ensure that the figures recorded
in the balance sheet are recorded accurately. Tests had been
completed and there were no issues that needed to be identified or
highlighted to the Committee.

Mis-statements due to fraud and
error. This is a standard risk that appeared on all
audits. The focus was on non-routine
journals at year end and any estimation techniques and any
judgements made by management. Tests
had been completed and the only adjustment that came out was one
regarding £18.5m of capital expenditure which was considered
to be non-enhancing and impaired in year, and should have been
allocated against net cost of services.

Property, Plant and
Equipment. The risk was around the
change in valuation in year by the District Valuer and the Council’s internal
valuer.
Tests had been carried out in year.
Instructions and data were provided to the Valuer by ...
view the full minutes text for item 25a

Caroline Davies EY confirmed that there had
been no change in scope from the risk identified in the report
presented to the Committee in March 2018. An update in the
materiality assessment had resulted in an updated threshold of just
under £5m (adjustments made over that amount are reported to
the Committee). In summary, subject to
matters outstanding, EY intended to issue an unqualified opinion on
the Pension Fund financial statements.
The status of the audit had been set out at the time of preparing
the report. A number of these
statements were now in the completion stages. The review of the Pension Fund Annual Report, that is not subject to the same deadline,
would be presented later in the year. The significant risks identified in the
report were detailed.

Misstatements due to fraud and
error – management override.
This risk was mandated on every audit that EY carry
out. There were no issues that had been
identified to bring to the Members’ attention.

New General
Ledger System. The same
system was in use for the Pension Fund and the work carried out on
system migration from SAP to Integra also spanned the Pension Fund.
There were no matters to bring to Members’ attention.

Valuation of
unquoted investments. This
was in recognition of the often judgemental nature of these
investments that were not often publicly available. Page 11 set out the balances that EY considered
for level 3 investments. Details of the
work undertaken by EY were given and EY concluded that no errors
were found in these valuations at year end. There was a small
uplift of £2m from the draft statements that fell within the
reporting threshold.

Valuation of
directly held properties.
This is identified as a higher inherent risk in recognition of a number of assumptions and
judgements and EY concluded that there was nothing that needed to
be brought to Members’ attention.

Page 18 of the report summarised the adjusted
differences as part of the audit process. There were a small number of adjustments over the
reporting threshold. None had an impact on the reported financial
position of the Pension Fund and management had made the
adjustments to the accounts.

Members stated that on the front page the
report should be dated 30 July 2018.

With regard to the valuation of unquoted
pooled investments, Members asked if a quarterly report should be
available from the originator of the pool. The Head of Treasury and Pensions stated that
these figures were unquoted as private equity was not publicly
available on the stock market. The
vehicles were a combination of values from managers and underlying
fund managers. A quarterly valuation
was available but there had been a delay in receiving it, so the
latest value available was quoted and later updated.

EY thanked the Pension Team for their support
in preparing their annual Audit results report.

The interim Head of Internal Audit and
Financial Services stated that the Code of Corporate Governance had
been presented following a refresh in June 2017 to take account of
the CIPFA SOLACE framework ‘Delivering Good Governance in
Local Government published in April 2016.

The 2018 Framework had been updated to ensure
that the Code was compliant with the seven core principles in the
framework. Pages 54 onwards of the
report described the core principles and the current arrangements
that the Council had in place, together with an action plan that
had been identified by the Corporate Governance Group to ensure
that the Council continually reviewed the process. The actions were
allocated to a responsible officer and monitored and an indicative
date for completion was given. The Plan
was monitored by the Corporate Governance Group and compliance
would be monitored as part of next year’s AGS review of
effectiveness.

The document would be published on the
intranet to ensure that staff were aware
of this information and the requirements to comply with the detail
included in the document.

With reference to the Action Plan 2018/19
column on page 54, Members asked what the “consideration of
the value to support People Helping People”
meant. The Head of Internal Audit and
Financial Services stated that this was about how the Council could
take the core principle A “Behaving with integrity,
demonstrating strong commitment to ethical values, and respecting
the rule of law’ and apply this to the agenda when working
with volunteers.

Joint presentation of the
Director of Strategy, Governance and Change and the Director of
Finance and Resources.

Minutes:

The interim Internal Audit and Financial
Services Manager (IAFSM) gave a presentation to explain the key
elements of the Corporate Risk Register (CRR), how it was developed
and quality assured and how risk management fed into the overall
governance arrangements.

Over time a number of risk categories had been
developed and risk owners identified.
Discussion and input took place with the risk owners about the
risks and how they had been identified.
There was discussion and challenge from the DFR and the Director of
Strategy, Governance and Change and ultimately through the
Corporate Governance Working Group which reported into the Senior
Leadership Team. There were
fourteen risk categories that were currently being reviewed to
ensure they remain accurate. Categories
9 and 10 ‘Joint Finance’ had been merged into one
category. These were listed on page 72
of the pack with the inclusion of business continuity
arrangements. Risk owners were listed
on page 73. The risk owners were
responsible for co-ordinating the identification, collection and
production of their risk in their own area.

With reference to the Measurement of Risk, the
risks were graded according the likelihood that the risk will occur
and the impact that this would have on the organisation if it
arose. CRR will only report to the
Committee on high level risks with net risk scores of 15 and
above. Risk Managers will manage those
risks that score under 15.

A risk assessment model was detailed on page
75 of the report. This was kept under
review. On a risk rating of 1-5
with a score of 1 indicating that there was a remote chance (likely
to happen within 10 years) and a score of 5 indicating that a risk
was highly likely to happen within a year. Risks were categorised according to the impact;
health, safety and welfare; customer service; finance and
reputation.

A matrix illustrating the impact of risk
against the likelihood of risk was given on page 76 of the
report. Risks in the red category would
be included in the CRR. Managers were
asked to keep medium or amber risks under review, and green risks
were the lower risks. These were being regularly reviewed as low
risks could be escalated to high risks.

The format used for reporting risks was
described. Once the risk categories
were identified and given in detail, individuals were asked to
identify what current controls were in place. This fed into the
risk score. This gave a risk score and
details of specific actions that had been taken were detailed, and
the date when mitigating actions had been completed. This led to a revised risk score being given.

The CRR were currently being updated and is a
dynamic document that is kept under review. The IAFSM ran through the top ten risk areas with
Members. These were MTFS pressures on service delivery/maintaining
legality/legal risks whilst undergoing change; health and social
care integration (including the STP); HR related risks (including
capacity/workforce strategy); digital technology developments;
business continuity planning and service ...
view the full minutes text for item 27.

The interim Head of Internal Audit and
Financial Services stated that there was a requirement to review
and update the Financial Regulations on regular basis to ensure
that they remain accurate and fit for purpose. A detailed review had been undertaken to reflect
the changes that had occurred following the introduction of My
Finance and MyHR financial systems,
together with minor amendments reflecting changes to job titles of
relevant officers. In line with Section
151 of the Local Government Act 1972, the Director of Finance and
Resources was responsible for dealing with the Financial
Regulations. The main areas of change
in the Financial Regulations were in reference to Financial
Regulation E and Financial Regulation F detailed and highlighted in
the paper and a number of changes were made to the anti-money
laundering strategy contained in Appendix 2 to reflect requirements
of the new regulations, published in 2017.

RESOLVED:
That the Committee recommends the County Council approve the
revised Financial Regulations for inclusion in the
Constitution.

The interim Head of Internal Audit and
Financial Services reminded Members of the items on the agenda for
the next meeting. The Forward Plan
included two additional meetings on 30 October 2018 and 29 January
2019. The Financial Regulations would now go forward to the next
full Council meeting and the Annual Governance Statement 2017-18
would be presented to the Leader and Chief Executive for their
signatures. The Top 10 Risk Areas would be added to the Work
Plan.

RESOLVED: That the Work Plan
be approved, with the addition of the Top 10 risk areas be added at
a date to be agreed.

30.

Exclusion of the Public

The Chairman to move:-

“That
the public be excluded from the meeting for the following items of
business which involve the likely disclosure of exempt information
as defined in the paragraphs of Part 1 of Schedule 12A (as amended)
of the Local Government Act 1972 as indicated below”.

PART TWO

Reports in this category are exempt as
follows:

Minutes:

RESOLVED: That the public be
excluded from the meeting for the following items of business which
involve the likely disclosure of exempt information as defined in
paragraphs of Part 1 of Schedule 12A (as amended) of the Local
Government Act 1972 as indicated below.